Another Nail in Bumi’s Coffin

on Sep 25, 2012

Shares of Bumi Plc (LSE:BUMI), the international mining company, plunged to £1.476 on Monday 24 September after the announcement it launched an internal investigation into alleged financial irregularities. According to the Financial Times, the FTSE 250 company will probe parts of PT Bumi Resources in which it holds 29 percent stake.

Bumi Plc’s statement as quoted by the FT:
“An area of focus of the investigation will be the development funds of PT Bumi Resources Tbk. The extensive development funds in PT Bumi Resources Tbk and the one development asset in PT Berau Coal Energy Tbk were marked down to zero in the accounts of Bumi plc as at 31 December 2011, except for one investment with a carrying value of $39 million in the consolidated financial statements.”

As reported by Bloomberg, the probe would be handled by a London-based law firm and has been initiated after non-executive directors provided evidence to the board of chairmen revealing suspicious transactions at PT Bumi Resources. The heavily indebted Jakarta-listed coal miner operates Kaltim Prima, the largest thermal coal mine in Indonesia, and is one of the major suppliers of coal to India and China.

!m[](/uploads/story/448/thumbs/pic1_inline.png)Last year Nat Rothschild, the person who founded the Indonesian coal venture and subsequently listed it on the London Stock Exchange, made public a letter written by him and addressed to Bumi’s ex-chief executive Ari Hudaya in which the financier asks for a “radical cleaning up” of PT Bumi Resources. The Bakrie family, who partnered with Rothschild to set up the LSE listing, retaliated immediately and attempted to remove the British financier from the board. Soon after, Mr Rothschild stepped down as co-chairman.

The Bakrie family’s most prominent member is Aburizal Bakrie – a successful businessman and the favourite for the 2014 Indonesian presidential elections. Mr Bakrie has stepped down from running the family businesses, including Bumi PLC, but analysts see the company’s financial woes as a handicap to his future presidential campaign. “The negative publicity about the group’s finances will inevitably reflect poorly on Mr Bakrie, complicating his ability to persuade mainstream voters that he can be a competent manager as president,” said Jakarta political analyst Kevin O’Rourke as quoted by the FT.

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Bumi’s original IPO took place in the beginning of July 2011 and since then shares of the company have plunged by almost 90 percent to under £1.40 on Monday. The miner’s presence in the City started with Mr Rothschild and former Anglo-American executive James Campbell setting up a cash shell to fund acquisitions in the resource industry. Through a $3 billion deal (£1.85 billion) the so-called Vallar cash shell acquired shares in PT Berau Coal Energy and Bumi Resources and subsequently renamed itself as Bumi Plc.
Bumi is the worst performing member of the FTSE 350 Mining Index as its large debt and low coal prices weight on stock prices. On Monday the company’s share slide pulled down Jakarta’s Composite Index by 1 percent to 4,200.91 – its lowest close since 13 September.

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